Why does my employer's cost look higher than my salary?

Because it includes the employer's own matching FICA contribution plus the value of any benefits — real costs that don't show up on your paycheck.

Can I just add 20-30% to a W-2 salary to get an equivalent 1099 rate?

That's a commonly cited rough rule of thumb, but it's imprecise — the real gap depends on your specific benefits value, billable-hours utilization, and business expenses.

Does this tool tell me whether I should legally be classified as an employee or a contractor?

No — that's a legal determination based on the IRS common-law test, DOL economic-reality test, and (in some states) a stricter ABC test.

Do contractors get unemployment benefits if the contract ends?

Generally no — unemployment insurance is an employer-funded W-2 benefit.

What business expenses can a 1099 contractor actually deduct?

Ordinary and necessary business expenses — home office, equipment/software, health insurance premiums, business insurance, half of self-employment tax.

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Contractor vs. Employee (1099 vs. W-2) Calculator

Compare take-home pay and true cost between a W-2 offer and a 1099 contract rate.

🔒 Runs entirely in your browser — nothing here is ever uploaded

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Last reviewed 2026-08-30

About the Contractor vs. Employee (1099 vs. W-2) Calculator

Compares take-home pay and total cost between a W-2 employee offer and a 1099 independent-contractor rate, isolating the real structural difference — who pays FICA payroll tax, and how much — rather than just comparing a salary number to an hourly rate.

100% Free Runs in Your Browser No Sign-Up Required

How to use it

Enter the W-2 annual salary being offered, plus an estimated dollar value of its benefits.
Enter the 1099 contract hourly rate and how many billable hours per year you'd realistically work.
Enter your expected annual business expenses as a contractor.
Compare each path's take-home pay before income tax, plus the employer's total cost for the W-2 option.

Formula

W-2 take-home (pre-income-tax) = salary − employee FICA (6.2% Social Security up to the wage base + 1.45% Medicare). W-2 employer's total cost = salary + benefits value + employer's own matching FICA share. 1099 net profit = (hourly rate × billable hours) − business expenses. 1099 self-employment tax = 92.35% of net profit × 15.3%. 1099 take-home (pre-income-tax) = net profit − self-employment tax.

Worked example

An $80,000 W-2 salary with $8,000 in benefits value, versus a $50/hour 1099 rate at 2,000 billable hours/year ($100,000 gross) with $3,000 in business expenses: the W-2 path nets about $73,880 pre-income-tax take-home (employer's total cost: about $94,120), while the 1099 path nets about $83,294 after $13,706 in self-employment tax.

Who pays what — W-2 employee vs. 1099 contractor

Who pays what — W-2 employee vs. 1099 contractor
	W-2 employee	1099 contractor
Social Security + Medicare	6.2%+1.45% withheld; employer pays a matching 7.65%	Full 15.3% self-employment tax, paid by you (half deductible)
Typical benefits	Often health insurance, 401(k) match, PTO, paid by employer	None provided — the contractor rate has to cover these if wanted
Deductible business expenses	Generally not deductible	Ordinary and necessary expenses reduce taxable net profit
Unemployment insurance eligibility	Yes, employer-funded	Generally no

Interpreting your result

Both take-home figures are shown before federal/state income tax, which both paths owe on broadly similar brackets — the real difference isolated here is payroll tax, benefits, and deductible business expenses, not income tax itself. This tool does not determine whether a role is legally a W-2 employee or a 1099 contractor — that's governed by IRS common-law, DOL economic-reality, and (in some states) ABC-test rules. Not legal or tax advice.

Recommendations

• A 1099 rate needs to be meaningfully higher than an equivalent W-2 salary just to cover the extra 7.65% employer-side payroll tax you now pay yourself, before even accounting for lost benefits.
• Track actual billable hours realistically — see the Freelancer Hourly Rate Calculator for that side of the math.
• Don't just compare a salary number to an hourly rate × 2,080 — that ignores payroll tax, benefits, and unpaid time between contracts.

Frequently asked questions

On payroll tax specifically, yes — a contractor pays the full 15.3% self-employment tax versus an employee's 7.65% share, though the contractor can deduct half of it and often deducts more real business expenses.